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Declining Oil Prices in Vietnam - Problematic for Managing the Budget Deficit

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Published on : Jan 27, 2015

Falling prices of oil are fuelling the domestic consumption pattern in Vietnam and is as a result giving a significant boost to the Vietnamese economy. This is also presenting a dilemma for the government since the country’s efforts to control the budget deficit is also getting threatened. As per Bui Duc Thu, a member of the National Assembly’s finance committee, a certain decline in crude oil prices proves to be risky for the government that receives much of its revenue from oil, and this also makes up almost 10% of entire state’s income. 

According to an official study, this year’s growth target may not be attained. Based on the current year’s budget, Vietnam had set the oil price at $100 per barrel, is now facing a situation of crude going below $50 a barrel The gasoline import tariff hike was cancelled by the Finance ministry the same day of this announcement the week earlier, which showed the challenge for the oil-exporting countries because it tries to shield the consumers and businesses from the impact of higher taxes and also addressing a fiscal shortfall that is greater than that of Thailand, Indonesia, and Malaysia. 

According to a chief economist at VinaCapital Group this to and fro trend shows a complicated problem and the government should carefully take steps to balance out the several interests in the economy. This has in fact, given rise to a situation of dilemma. Malaysia is also facing the same dilemma, wherein oil-related contributions account for almost 30% of the annual state revenue. The week earlier, Najib Razak, the prime minister stated that the budget gap of 2015 is estimated to be 3.2% of GDP, greater than an October target of 3%.